Drip is a ponzi that lets you keep all your friends
I know it’s a ponzi. That’s why I invested. But in a climate where petrodollars will soon become petroBitcoin not all ponzis are created equal.
My spider-senses fire off like crazy whenever I sense a strong cult-like reaction to level-headed questions. This can apply to both within the cult and the periphery of haters against the cult. Most cults are dangerous and malign, but I want to use the term cults very neutrally here.
When I was gathering some community thoughts about Drip from the telegram spaces, one particular group banned me when I probed if it was still a ponzi when the daily 1% return is meted out regardless if you made any downline recruitments. Overly emotional and discomposed reactions to valid questions made me consider Drip more strenuously. The same intuition arose when I saw how fervent people can be in deriding dogecoin and memecoins in general. Groupthink in cult-like behavior apparently exists in cults and outside of cults. Oh yes, the Drip telegram feels absolutely like a cult — it’s like putting Neil deGrasse Tyson in a Church meeting. That isn’t necessarily a bad thing.
I started looking at Drip as a pure technical network that is governed by Metcalfe’s Law. At first I demanded equivalent exchange from how Drip operates, and equivalent exchange demands that some productive business activity needs to happen to generate value. I couldn’t figure out how 255% is paid out while only 10% was extracted from deposits and transactions. Yet Drip doesn’t perform any value generation under the hood, not directly anyway. It looked like a ponzi where funds were centralized in the protocol and then distributed to earlier adopters. Even if you don’t take money from your recruits directly, revenue does end up on your account because of capital injection from new entrants and we can see how this is an indirect ponzi-esque value transfer; if such capital inflows stop today and never accrue again, the value of DRIP will go to zero in ten days. While speaking to Cryptozoa he admitted it is a grey area as to how an extra 255% is created out of nothing. My first thought was simply from the transaction fees on Pancakeswap’s BNB-DRIP liquidity pair, and honestly DRIP’s creators could have asserted so and no one would be none the wiser. Coming from high APR degen farms on Polygon, 255% base APY isn’t even that high. Yet neither the white paper nor Forex Shark himself (Drip protocol’s creator and chief developer) say the daily 1% yield is generated from a liquidity mining strategy.
The critical determinant in judging if DRIP constitutes a ponzi scheme is whether the base payout of 1% daily APR is dependent on new entrants who deposit into the protocol. The answer would be yes - if you are fixated on entrants who cash out of all their DRIP eventually by converting yielded DRIP back to dollars. At some future state where adoption of DRIP is already commonplace, the yields of existing users would need to be supplied by an ever smaller pool of new users. At merely 4.5K users at the time of writing, new entrants will pretty much be entering on the ground floor for a long time.
More distributed than a pure hierarchical pyramid
However, technically speaking, the answer is no. The protocol does pay out 1% in DRIP the day after you made your first deposit, and then everyday after. Traditional ponzis do not do that — in those business structures the lowest rank of recruits typically receive rewards after they recruited another. The stark contrast DRIP holds over a traditional ponzi scheme is that every single existing entity on the upstream and across the entire network is affected by the same proportional depletion of the rate of wealth accrual when the price of DRIP in terms of USD falls (even then you simply compound instead of claim). Instead of shady and inequitable rank structures where upstream entities get disproportionately more rewards, DRIP maintains meritorious integrity equitably, and the size of yields are proportional to each entity’s contribution — the amount of his principal deposited and the number of recruits he has galvanized. Every instance of recruiting and reward distribution is accounted for all to see and verify on the blockchain. Even if you are a new entrant today, your DRIP yields will outperform existing members’ if your contribution warrants as such.
What happens to the downstream folks who enter then?
I honestly don’t care.
A hypothetical streamer now who recruits thousands of her followers who then go on to recruit thousands upon thousands more will still remain safely within the neighborhood of an early adopter. Most of the world have not even bought their first crypto. Even if you do recruit friends and family to this ponzi, they will thank you for it 100%. You have just given them the opportunity akin to the financial meltdown back in 08–09 where profits are privatized (earlier) and costs are socialized (later).
Scale-free means massively scalable, despite how it sounds. In the digital age where scale-free adoption happens exponentially, it would be millions upon millions of users before the ponzi’s own weight starts to heave in on itself. The latest wave of new joiners in some distant future who would borne most of the costs would be so far removed from your social network they might as well not exist. Truly, if half of a small city population like Singapore numbering in a couple of million people would be on DRIP today, their yields will be sustained even if they do not hustle new recruitments. Today it would last off the flurry in investor communities in Shanghai. The next month the same gallivanting Singaporeans would be oblivious to surging adoption in Indonesian communities, then Nigeria, then Moscow, then full circle back to circles in Beijing who fomo-ed in after being envious of their Shanghainese friends. The crypto ponzi has solved the scaling problems ponzis of yesteryear suffered from.
It should come as no surprise that I hold in high regard Ayn Rand’s ethical egoism as the purest form of utilitarianism. I thought Rawls and Kant were utter hogwash in school. Who’s to decide that it is right to impinge upon the right of many to benefit from Drip to avoid wrongs that haven’t occurred on a perfectly avoidable version of the future (as I will discuss soon)? No one knows how the Drip project would evolve and you can tag on myriad use cases to increase the token’s utility later. In fact, all utility tokens don’t possess utility until their creators decree as such. The Cardano token is the native token on the Cardano blockchain because Charles Hoskinson dictated as such. Tfuel is being used as the native currency on the Theta network because SOMEONE DECIDED to confer that purpose. Purpose is then socialized across a number of users and potential users. From a first principles perspective, all tokens begin as shitcoins upon genesis until their utility is arbitrarily decided on and programmed to work as such. Then, that purpose is mass communicated and socialized. Everyone forgets Bitcoin was the original shitcoin. Besides being used as a conduit for ponzi-like activity, who’s to say Drip cannot be conferred additional utilities? More importantly, when Drip is conferred important utility, can moralists on the other side be considered moral when they deny beneficiaries of such utility?
Just recently, Drip was used as one end of a liquidity-pair in a third party yield farm. The Drip protocol itself hosts a DRIP-BNB liquidity pair. It’s still very incestuous but the future is in our hands.
DRIP as a store of value
You should have realized by now what I actually want Drip’s endgame to be. This also resolves moral concerns — older entrants would be wondering if they should cash out or accumulate DRIP while younger entrants are essentially using fiat to acquire a cryptographically secure store of value. If such a purpose is legitimized and DRIP moves to command significant market capitalization, there would not only be less of a risk to hold and recompound DRIP, it would actually be impossible for huge selloffs to happen because well, no one earns more than 1% of their max payout daily. I was drawn to Drip because I was already looking for such attributes so I can farm a high daily APR peacefully without having to check candles every five minutes. If you think about it, Bitcoin is the purest, uncomplicated form of the crypto ponzi. If you can use it as collateral to borrow against it indefinitely, that is ultimately a form of rent collection albeit in a more indirect way than how DRIP works.
Betting on DRIP now is betting that even if you recruit zero people, a bevy of heavily incentivized users will recruit millions to the charade to your benefit. In fact I think of DRIP as a working protocol designed with elements that will yield results that come closest to my TITANx initiative, wherein I tried to promote $TITAN as a store of value token similar to Bitcoin. TITANx has absolutely crumbled as the majority of players are simply opportunistic gamblers without ambition or foresight and simply want a quick exit. I’ve sold (if you want me back to lead, let me dictate everything).
There are social psychological restraints that keep a coin from “mooning”:
- prisoners dilemma stops any meaningful market cap gains as fear and uncertainty causes blow off tops
- tragedy of the commons attract mid sized players who will scalp and short an open market venture to worthlessness
Whereas other memecoin projects suffer problems vested in social psychology, the Drip token is designed with impediments that make scalping and dumping it very unlucrative, such as locked staking, 10% tax on all transaction and a whale tax system. Additionally, there is a tremendously lucrative referral system that makes DRIP an influencer’s coin of choice. With such design implements in place that makes dumping a principal investment completely impossible, there is very little selling pressure.
Whether the DRIP community likes my “Moonvault” goals or not, both protocol and the investor consciousness are both aligned in symbiotic relationship. I actually did try to convince them but it fell on deaf ears, as usual. Fortunately, as studies in stigmergy would explain, if the system is designed in a way to cultivate, incentivize and reinforce a certain configuration of investor behavior, such a lofty goal is likelier than before regardless of whether the Drip community likes it or not. In fact, the drip protocol already works like Moonvaults do — your deposited stake is immediately consumed by the protocol; this promotes risk-taking behavior through skin in the game. Actually, it’s even better since it returns you more of the token in yields with the massive exponential upside of compounded gains. Most people think this moonshot is just a pipe dream. But I believe it is less likely that the next 1 billion crypto adopters would simply capitulate to a BTC wealth inequality.
The risk of investing in Drip is still manifold. Governments could weigh in but seeing as how they haven’t stopped HEX on Ethereum, which works similarly, this is unlikely. In fact the growth of HEX (spoiler: it’s parabolic) can be seen as a predictor of how DRIP will perform. While HEX is truly a disdainful ponzi where the value of the token goes to zero i.e. it’s inflationary, Drip is fiercely deflationary. There will only ever be 1 million DRIP tokens. The only real risk then falls on the protocol’s internal integrity. Specifically, if malicious code is present that will collapse its economic viability — typically by draining investor funds. The good news is that at the time of writing, an audit was published by Forex Shark using the open source analyzer Slither. The best adage of the blockchain age when it comes to security is not to trust but to verify the audit for yourself.
If you would like to pick my brain and finds my investment thesis to be interesting, consider joining my DRIP team using this code and then clicking “buddy selected”. A minimum of 1 DRIP is required. White paper exists here.
Although the team is dedicated to Drip now, the endgame that will persist is to own and earn passive dividends through rent collection on virtual land.
If you like to donate:
Doge (native): DFxekwQsu7coD8BjxsC5zVj2EzVRd5SMnF
Eth (ERC/BEP): 0x12fb59db4d93c212e9441cd922cd2c2c37379815